Abbott Labs' (NYSE:ABT) split into two separately trading companies: one, Abbott Labs, with diversified medical products, and the other, AbbVie (NYSE:ABBV), with research-based proprietary pharmaceuticals, will be effective from today, on Jan 2., and AbbVie will begin trading today. Our $67 price estimate for Abbott Labs is for consolidated entity, and our current analysis does not reflect the split. We will soon update our model on availability of 2012 10-K form and pro-forma financials. Meanwhile, we provide the detailed structure and prospects of the companies following the spin-off.
Abbott Labs: A Well-Diversified Play
Post spin-off, Abbott Labs has a diverse portfolio of healthcare products including:
- Pharmaceuticals - Generic drugs.
- Nutritionals - Products such as infant formulas, snack bars and meal replacement shakes.
- Vascular - Minimally invasive medical devices for heart diseases, strokes, carotid artery diseases, and other serious vascular conditions.
- Diagnostics - Systems and tests used for screening for drugs of abuse, cancer, therapeutic drug monitoring, fertility, physiological diseases and infectious diseases such as hepatitis and HIV.
While this business is left with products having relatively lower margins, we expect growth to be fairly stable in the long term. These businesses have a significant presence in rapidly growing markets like India, China and Russia and should provide a substantial growth opportunity.
In the pharmaceutical business, the company committed to several purchases in the past like Solvay and Piramal to diversify its portfolio and expand into emerging markets. On a similar note, the company recently opened a nutritional R&D center in India and struck an R&D deal with a Russian group to boost its nutritional business. In the vascular business, the company is developing a next generation Drug Eluting Stent (DES), XIENCE Xpedition, which is expected to launch in Europe this year and in the U.S. in 2013. Further, the company’s XIENCE PRIME received approval in Japan earlier this year.
AbbVie: Dependence On Humira Could Hurt
AbbVie has the higher-margin proprietary pharmaceuticals and biologics, including primary care and specialty care drugs that prevent and treat conditions such as autoimmune diseases, lipid disorders, kidney diseases, prostate cancer, thyroid diseases and HIV. The company’s prized asset, the blockbuster drug Humira, is part of AbbVie and will drive future revenues for the company.
However, even greater dependence on Humira is a concern. Humira will lose patent protection in late 2016 in the U.S. and mid-2017 in Europe. The company’s current pipeline doesn’t have a lot of very strong potential blockbuster drugs, which could limit its growth potential in the long term. Recently its partner Reata Pharmaceuticals discontinued a late-stage trial of their potential blockbuster drug for chronic kidney disease and diabetes due to safety concerns raised by an independent safety committee.
Another worry is the growing competition for Humira (Read: Pfizer Receives Major Boost As FDA Approves RA Drug Tofacitinib). Further, Tricor went off-patent in July 2012 while other drugs such as Niaspan and Kaletra are seeing a decline in sales due to significant competition.
Disclosure: No positions.